Adjusting to Construction in the Smart Home Technology Age

Snell & Wilmer

Snell & WilmerOver the years, smart home technology has improved, expanded, and become more reasonably priced. As a result, homeowners are increasingly including it in their construction plans. While the conveniences of smart home technology are undeniable, the drawbacks deserve some attention, as well.

Typically, smart home technology allows a homeowner to connect to and control appliances and devices from anywhere, using a mobile or other networked device. The smart home system is typically run through software, and the devices are interconnected through the internet. These days, smart home technology extends to almost every system in the home including security, lighting and electricity, heating and cooling, and kitchen and other appliances.

As we know from our experience installing software updates on our computers and cell phones, software does not always operate as smoothly as planned. Glitches with smart home technology can lead to negative consequences that impact the home environment. A smart home technology malfunction can result in a device turning on or to the wrong setting without the owner’s input. As with any other device, software updates and provider maintenance are often required to prevent or remedy system bugs or performance failures. If the product is discontinued or the developer goes out of business, however, certain devices may no longer be supported with upgrades or updates. If a device becomes unusable, the homeowner may try to recoup its losses from the contractor that provided or installed it.

Another significant peril stems from the fact that the smart home devices are connected to the internet. By now, people are generally familiar with the risks of emails and computers being hacked. We associate those hacks with a potential compromise of personal and financial information, creating an opportunity for property and identity theft. Smart home technology systems can also be hacked. The consequences, however, are arguably even more invasive than exposure of personal and financial data. A cybercriminal who gains access to the connected devices can, among other things, set the home’s thermostat to dangerous internal temperatures, unlock doors, or access security cameras to spy on the people in the house.

There are measures that a homeowner can take to minimize the risks of hacking, such as buying reputable and safe devices, installing upgrades when offered by the developer, and using safe passwords to secure the devices. That being said, the risks still remain, regardless of good intentions and practices.

What does all of this mean for a contractor that provides or installs smart home technology? Contractors should start by being informed about the smart home technology systems they are providing or installing. Just like some building materials are better quality than others, the same goes for smart home technology. If the contractor is aware that the customer has chosen a substandard system, the contractor should recognize the increased risk that the system may fail or be vulnerable to a hack and, therefore, include appropriate protections in its contract with the customer. For example, if an owner insists on using a sub-par system, the contractor may choose to simply exclude the provision and installation of such system from the project scope under its contract.

If the contractor agrees to provide or install any aspect of a smart home technology system, it should consider including a written notice to the customer of the risks of software issues and hacks. Further, the contractor should consider including in the contract (to the extent allowed by applicable state law): a limitation of liability for these perils which are not caused by the fault of the contractor; and confirmation that it is the owner’s responsibility to maintain the devices, update the software, and keep the system safe. Further, to the extent the contractor installs the physical devices, it may be appropriate for the homeowner to be the one to install the actual software since it will be the owner’s responsibility to maintain and update the software going forward. Indeed, the contractor is providing building services, not IT services.

Another issue to consider is that the contractor’s standard liability insurance may not cover some of the risks associated with smart home technology. For example, many policies exclude cyber risk, unless a special coverage endorsement is purchased. Contractors should consult with their insurance agent regarding insurance coverage that may be available in connection with providing and installing smart home technology. As an aside, contractors may want cyber risk coverage anyway, as more and more contractors’ own computer systems and their emails may be subject to being hacked.

As the construction industry evolves and overlaps with the tech industry, contractors need to take a moment to initiate policies and procedures to protect themselves from the increased exposure that comes with this new territory.

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